VALUATION (BRITISH ALUMINIUM AND LOCHABER POWER COMPANIES)

HC Deb 04 July 1967 vol 749 cc1723-30

11.1 p.m.

The Minister of State, Scottish Office (Dr. J. Dickson Mabon)

I beg to move: That the Valuation (British Aluminium Company Limited and Lochaber Power Company) (Scotland) Amendment Order 1967, dated 6th June 1967, a copy of which was laid before this House on 22nd June, be approved. The House will have noted the House of Commons Paper No. 467 which explains the considerations leading to the provisions of the Order. As explained in the Paper, the House will see that under Section 13 of the Local Government (Financial Provisions) (Scotland) Act, 1963, the Secretary of State is empowered to make provision by Order for determining the rateable value of any lands and heritages occupied by persons carrying on (otherwise than under authority conferred by or under any public general enactment) an undertaking for the generation of electricity by water power. This power was conferred on the Secretary of State to enable him to deal with the British Aluminium Company's installations—the only private hydro-electric undertaking in Britain.

The 1965 Order, which this Order amends, was made following representations by the company that the contractor's principle, that is, the one under which the valuation is a percentage of the capital value of heritable property, resulted in an unfair valuation in the case of hydro-electric installations which necessarily require extensive works of a heritable nature. The company stated that its aluminium production was economic only because electricity was produced at low cost from installations built in the 'thirties. This made a valuation based on current values, as distinct from original cost, quite unfair. A further factor, said the company, was that if industrial derating were to be removed in 1966, the year of the Scottish revaluation, the rate burden produced by the then existing valuations might cause the company to consider very seriously the future of the undertaking.

The effect of the 1965 Order was, broadly, to modify the contractor's principle so that the rateable value was based on the original capital costs of the works rather than on estimated current value. The Order reduced the rateable value—that is, after taking into account the 50 per cent. derating, of the installations—from £123,000 to about £90,000. But the local authorities concerned in Inverness-shire and Argyll did not lose income because the lost rateable value was made up by Exchequer equalisation grant. In terms of the 1963 Act the effect of the operation of the 1965 Order fell to be reviewed in the light of the general revaluation. As the 1965 Order supplanted normal methods of valuation the company's installations were unaffected by the revaluation, and they were entered in the 1966–67 valuation rolls at the same amounts as in 1965–66.

Following revaluation, however, the aggregate industrial valuation of the landward area of Inverness—and I am here disregarding the substantial new elements in the pulp mill valuation, for obvious reasons—was estimated to be about 4 per cent. higher, and industrial valuations in Argyll about 19 per cent. more.

As a result of its hydro-electric valuation remaining unchanged, while other valuations increased, the share of the total county rate burden met by the company in respect of these installations dropped—in Inverness by a little over 2 per cent. and in Argyll by 0.3 per cent.

Consultations therefore, began with the company and the local authorities some months ago. The company's case was, briefly, that the 1965 Order had been in operation only for one full rating year and since it took effect no significant physical or economic changes had taken place, and none could be foreseen at present.

The company, therefore, argued quite fairly that there were no grounds for varying the terms of the 1965 Order. The local authorities concerned, Inverness and Argyll County Councils, and the Association of County Councils in Scotland, took the view that, as there had been a general increase in valuations in Scotland, the valuation of the company's hydro-electric installations should be raised to a similar extent, that is, by 31.6 per cent.

While accepting that there is some substance in the company's arguments, the Secretary of State takes the view that it would be very difficult to justify a situation in which, after a general revaluation affecting all other properties, the company's installations are left exempt. The fact that there is provision for a statutory formula cannot be taken as implying that the valuation should be static and the company has the continued benefit of industrial derating.

The only equitable solution, therefore, is to make some upward adjustment of the valuation. The effect of the amending Order will be to increase the valuation of the hydro-electric installations so that the new valuation will bear the same relationship to the old as the industrial valuations—modified to take account of the pulp mill, which is rather special—of the landward areas of Inverness and Argyll for 1966–67 bear to those for 1965–66 that is increases of aproximately 4 per cent. and 19 per cent. respectively. This will mean a valuation of about £95,000 compared with £90,000 under the 1965 Order. We believe this to be a reasonable outcome. It establishes the principle that the company's valuations must not be regarded as static without exposing the industry to a substantial increase in overheads on this score. In essence, the proposals in the Order are the result of negotiation with the company and the local authorities, and are a reasonable attempt by the Secretary of State to hold a fair balance between the interests of both parties. I therefore commend the Order to the House.

11.8 p.m.

Mr. Gordon Campbell (Moray and Nairn)

I agree that the system of valuation in the Order and in the 1965 Order contains a fair method of assessment of the properties of the two companies. As the Minister said, it followed the provision in the 1963 Act.

For many years, the companies have used hydro-electric plant to generate electricity in the west Highlands for the manufacture of aluminium, and in this they have helped to provide activity and employment needed in those areas. The increases now proposed of 19 per cent. for the property in Argyll and 4 per cent. for that in Inverness seem reasonable.

The Order applies to lands and heritages in those counties. One of the companies' plants has been at Foyers in Inverness-shire. Can the Minister clarify the position there? Has the property there been included under this valuation system? Regrettably, the plant there had to close down earlier this year, causing some unemployment at Foyers. I should be glad if the Minister could say something tonight about the company's lands and heritages there, and whether anything is being done and can be done to provide much-needed alternative employment.

11.10 p.m.

Mr. Russell Johnston (Inverness)

I should like to ask the Minister of State one or two questions about the Order. Often Orders are, inevitably, couched in somewhat legalistic language, and for our constituents properly to understand their import it is usually necessary for the Minister to explain them in relatively simple language. The Minister of State, who is normally a very lucid individual, in his explanation followed very closely House of Commons Paper 467 and quoted extensively from it, directly attributing some quotations but also quoting without attributions at some points.

First, would the Minister explain in a little more detail precisely what the contractor's principle is? I know that there is an explanation in House of Commons Paper 467, but I should like to know a little more about it and what difference it made to the British Aluminium Company. The Ministry said that the company had stated that had it been subject to straightforward rating it might well have had an effect on whether it would have been able to continue in the Highlands. Therefore, it is important to establish precisely on what grounds a different valuation was made.

Secondly, the Minister said that he disregarded the effect of the pulp mill for obvious reasons. The reasons may well be obvious to hon. Members, but they may well not be so obvious to people in the country. Will the Minister say why in his calculations he disregards the effect of the new pulp mill, because presumably the effect of other new properties is taken into account? I assume that he is taking into account other new valuations which may have come into existence in both Inverness and Argyll.

Thirdly, with regard to paragraph 4 of the Order, I should be interested to know in more detail than the Minister gave us what the company's case was. The Order says that the company's case was that no significant physical or economic changes had taken place since the Order was made. That was the Valuation (British Aluminium Company Limited and the Lochaber Power Company) (Scotland) Amendment Order 1967. This is a rather bald statement and hardly explains the grounds which presumably were justifiable in terms of making a case why the company opposed the claims of both Inverness and Argyll County Councils and, indeed, the expressed opinion of the Association of County Councils. I should like to know in more detail what the case was.

Lastly, I echo what the hon. Member for Moray and Nairn (Mr. G. Campbell) asked, whether in making the computation Foyers was taken into account? I doubt whether it would be in order to ask what arrangements the Government have been making to allow for the unemployment caused by the closure of Foyers, but if the Minister can say anything we shall be pleased to hear it.

11.15 p.m.

Dr. Dickson Mabon

In these proceedings it is always essential to consider precedent and that is why one is always concerned about that in Orders of this kind. With the different nature of the company and all the difficulties in its circumstances, it is very doubtful if there are any firms whose heavy capital costs have resulted in a rate burden of something like 20 per cent. of output value. That is why we could defend this Order against other claims by other industries for similar treatment.

The "contractors' principle" which I referred to is a valuers' phrase in which valuation is a percentage of capital value of the hereditable property and we have modified this in this Order, as we did in the 1965 Order. Some people have asked, "Why has a company all this difficulty? Why can it not cost the hydroelectric works and carry the cost of electricity on the market price?"

The answer is that it must—to be competitive, particularly in the international market, where the internationally competitive price is a farthing per unit—get cheap electricity for the smelting plant. If it is to be competitive, that puts a top limit on the value of the undertaking. At the same time, the company is in difficulties, for production of electricity is very difficult because of the size of the plant, and because of an uncertain supply of water. So the company has to face this situation against a background where rates and other costs are steadily rising, but it is limited in its ability to raise its output. This is difficult, and there are exceptional circumstances. That is why the Government have treated the company very exceptionally.

Another question is whether we should accept completely the company's case, that its valuation should be static and this the Government are not prepared to accept at this juncture. We are prepared to admit only that it is in a very special category and that modifications should be as fair as possible, and peculiar to the company, given these peculiar circumstances. We have to balance that against the demand of the local authorities for the same treatment in industrial valuation being accorded to them as to others.

We are proposing increases of 4 per cent. and 19 per cent. The 19 per cent. may sound large, but it does not amount to very much. Inverness, in the 1965 Order, was £80,600 and it will rise to £83,800. Argyll was £9,300 in the 1965 Order and it will rise to £11,100, so that 19 per cent. is perhaps misleading in terms of actual increase, but hon. Members should remember that what was requested was 31 per cent. in both cases. That is cut substantially. It would have represented quite a hefty demand on the company. That was why the Secretary of State could not accede to that demand.

If we had taken the pulp mill out, the industrial valuation of Inverness County would have risen considerably and the case would have been stronger against the company in percentage terms. For reasons peculiar to the pulp mill, we felt it unfair to take this into account in industrial valuation and that is why we took it on the broad basis, without taking the pulp mill into account.

It would be an abnormally large figure if we took the pulp mill into account and that would distort the picture. For the reasons of Foyers' loss of employment and their setback, we are anxious that the company should continue in business and we are still anxious not to make too heavy demands on its resources. That is the reason why we were able to accept the 1965 Order and this Order. I will not try to anticipate what the situation will be like after the next revaluation year. That is too far ahead. I prefer that we should not discuss it now. There are so many different aspects still unknown to us and circumstances about which we are not now clear. I prefer to leave that matter until the time comes.

I cannot now give a definitive answer about valuation covering Foyers. My feeling is that it does. I will, however, confirm whether this is so and will write to the hon. Members. It does not affect the central issue as to whether we should make this Order as a fair balance between the industry and the authorities concerned.

Mr. G. Campbell

I hope that, when the hon. Gentleman writes to me, he will tell anything he can about the situation of Foyers because this is, as he says, a worrying aspect.

Dr. Mabon

I will certainly comment on the wider aspect when I reply.

Mr. Russell Johnston

Can the hon. Gentleman also say whether the company is satisfied with the final result of the negotiations? Obviously, it can never be absolutely satisfied but is it severely dissatisfied or not altogether dissatisfied?

Dr. Mabon

The company is satisfied. I would not say that it is completely satisfied, but there have been no demonstrations outside St. Andrew's House. I think that it is hoping that, later on, the situation might be viewed by my right hon. Friend in a different context, perhaps even more favourably than he has done so far.

Question put and agreed to.

Resolved, That the Valuation (British Aluminium Company Limited and Lochaber Power Company) (Scotland) Amendment Order 1967, dated 6th June 1967, a copy of which was laid before this House on 22nd June, be approved.